Liberty Global Plc :LBTYA-US: Earnings Analysis: Q2, 2017 By the Numbers : August 10, 2017

Liberty Global Plc reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Liberty Global Plc – Shaw Communications Inc. Class B, Charter Communications, Inc. Class A, DISH Network Corporation Class A and Rogers Communications Inc. Class B (SJR-US, CHTR-US, DISH-US and RCI-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 4,584.60 million, Net Earnings of USD -674.30 million.
  • Gross margins widened from 31.37% to 32.34% compared to the same period last year, operating (EBITDA) margins now 44.60% from 43.97%.
  • Year-on-year change in operating cash flow of 9.79% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 13.36% to 14.69%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 4584.6 4429.9 5139.5 5207.2 5074.1
Revenue Growth (%YOY) -9.65 -3.45 11.75 13.26 11.12
Earnings (mil) -674.3 -320.2 2222.5 -249.5 101.4
Earnings Growth (%YOY) -764.99 13.25 883.67 -287.17 121.82
Net Margin (%) -14.71 -7.23 43.24 -4.79 2
EPS -0.66 -0.3 2.07 -0.23 0.11
Return on Equity (%) -5.09 -2.24 16.05 -1.85 0.86
Return on Assets (%) -3.92 -1.88 11.88 -1.25 0.55

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Market Share Versus Profits

Revenues History
Earnings History

LBTYA-US‘s change in revenue this period compared to the same period last year of -9.65% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that LBTYA-US is holding onto its market share. Also, for comparison purposes, revenues changed by 3.49% and earnings by -110.59% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 31.37% to 32.34%, while operating margins improved from 43.97% to 44.60% over this period. For comparison, gross margins were 31.24% and EBITDA margins 43.33% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

LBTYA-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -84.76, compared to last year’s level of -107.63 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

LBTYA-US‘s change in operating cash flow of 9.79% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 13.36% to 14.69%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 3.25% to -11.40%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Liberty Global Plc is an international television and broadband company. It offers broadband communications services, including video, broadband Internet and fixed-line telephony services; B2B services; as well as mobile services. The company’s brands include Virgin Media, Unitymedia, Telenet and UPC. The Virgin Media brand offers digital television services. The Unitymedia brand provides pay TV and IPTV services through VDSL and FTTx, as well as DTH. The Telenet brand offers interactive digital television and HD services. The UPC brand promotes Horizon TV, Replay TV and MyPrime services, as well as extended digital tier bundles. Liberty Global was founded on June 7, 2013 and is headquartered in London, the United Kingdom.

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